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Demanding to be included

July 13, 2014

Abstract: A recent consumer survey shows that India’s financial inclusion campaign is driven predominantly by ‘supply side’ approach with focus on creating incentives for financial service providers.  This approach, pursued for several years, has not been successful as evidenced by the limited access currently available for citizens to the formal financial system. It is therefore useful to look for clues for improving financial inclusion by exploring the inadequacies on the ‘demand side’.

To begin with, there is hardly any recognition of the network characteristics of financial access. For example, if government agencies–with whom people transact frequently–refuse to accept payment through mobile transfers, then, what incentives will people have to open accounts? Further, banks rarely offer any loan products that cater to micro enterprises characterised by small, but frequent cash requirements, unconventional collateral and significant cash flow risk. Logically speaking, therefore, why would individuals and micro enterprises demand to be included if they do not perceive financial services on offer to meet their requirements?

Keywords: financial inclusion; banks; micro enterprises; digital transfer; network externality

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